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Wall Street High On Automakers

Last year's sales picked up for US industry

SURPRISE! The United States auto industry is zooming to the head of the stock market freeway in terms of investor interest.

Last year was relatively good for US automobile stocks. And 1993 may be even better, analysts here say, reflecting the growing market share of the Big Three, impressive new models - especially from Chrysler Corporation - and Detroit's commitment to holding the line on car prices.

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On Monday Chrysler announced it would sell 40 million new shares of common stock, which, based on the company's current selling price, could add close to $1.5 billion to its cash position, before brokerage fees.

"Chrysler has become the latest Wall Street darling," laughs David McHugh, vice president of Northern Investment Counselors, a division of Northern Trust Company, Chicago. "The outlook for the US auto industry now looks brighter than at any time in the past few years."

The US industry sold about 13 million cars and light trucks last year, and could sell an additional 500,000 to 1 million this year, auto analysts say.

General Motors Corporation had a tough year in 1992, closing plants and announcing layoffs. But Ford Motor Company and Chrysler had some especially good news. Ford's Taurus ran off with the top-selling car honors, ending a three-year dominance by the overseas-owned brand, Honda Accord. Chrysler, buoyed by raves from analysts about its new product line, saw its stock price edge past that of General Motors in December - the first time since October 1987.

Despite zigzagging up and down throughout 1992, the auto sector was the second highest performing group among all the companies in the Standard & Poor's 500 index. While the S&P 500 rose only 4.5 percent, the US auto sector rose 42 percent; Chrysler's stock shot up 172 percent; Ford 52 percent, and GM, for all its woes, 12 percent.

Buoyed by projected increases in sales, as well as new industry heads at the Big Three, Detroit has the potential of turning in another good year in stock market gains, some analysts say. Both Chrysler and Ford are expected to earn up to $1 billion each this year. GM could break even.

Chrysler stock is currently trading at around $37, well above its low during the past 12 months of around $13. Ford is running around $45 a share, well above its low of $31 this past year; GM is bringing up the rear, in the $34 range, which is not much above last year's low of $29, and far below its high of $45.

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Some analysts remain wary. Ronald Glantz, who covers the industry for Dean Witter, recommends only Chrysler among the Big Three, largely because of the firm's "excellent new product line." James Alexandre, of Donaldson, Lufkin & Jenrette, has given what he describes as a "neutral" rating to the industry, because many questions remain about improved earnings. There is also the threat of a strike at GM later this year.

STILL, Chrysler continues to garner plaudits from investors. The company won significant market share last year, its best gains since 1988. And by 1995, according to Mark Altherr, an analyst with Salomon Brothers, the company will have replaced its entire product line. The new products are expected to have higher gross profit margins, which will add to the company's coffers.

The auto industry's growing fortunes should also give a boost to suppliers. Case in point: Northern Investment Counselors at Northern Trust is not carrying any of the Big Three auto stocks in its portfolio because of the investment office's tough evaluation standards. (Northern is looking for growth stocks and auto stocks are cyclical.) But Northern is carrying Superior Industries, which manufactures lightweight aluminum wheels for cars and is expected to post substantial earnings gains over time.

"1992 was a fair year in terms of sales and volume for equipment makers," says James Conner, executive vice president of the Motor and Equipment Manufacturers Association, near Durham, N.C. The association represents virtually all manufacturers of US vehicle parts and equipment.

"Profitability, however, was very good for the 700 or so equipment firms. But 1993 should be even better," Mr. Conner says.

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